Monday, April 25, 2011

Krugman and QE2

I missed this post from Krugman yesterday. Krugman thinks that, yes, QE2 didn't amount to much, as of course he expected all along. But nevertheless he thinks it should have been a lot bigger. See points #2 and #3 here.

7 comments:

Actually, he's been entirely consistent in being lukewarm toward it. From the very beginning he made it clear that he thinks it's worth a try, but no one should get their hopes up. But maybe I'm wrong and you could point out specifically where this snark is coming from.

I've noticed among too many public intellectuals, economist or not, that there is this sense of do anything and everything no matter what it is. That type of sloppy thinking is typical of politicians, but I expected better from our intellectuals and economists. Instead there is this sense that even if we think something probably won't work, we better do it anyway - even if there are large risks posed by the policy (e.g. the future potential inflationary consequences of QE2).

Frankly, what has got me most confused is why weren't all these New Keynesian economists out in full force calling on the Fed to pursue Svensson's "foolproof" way out of a liquidity trap. While I'm not a huge fan of New Keynesian models, at least Svensson's policy option has a coherent argument behind it. In the case of QE2, it wasn't just that I might disagree with the argument or model assumptions supporting the argument - there just never seemed to be much of an argument or model to disagree with.

Random papers from Svensson, in case anyone is unfamiliar with what policy proposal I'm referring to.

It's pretty clear he wants to have his cake and eat it too. He says it doesn't matter, but it does matter. It does matter if it's big enough, but we'll never see that event, so of course events can't prove him wrong.

Your critique is true of most macro. Most people throwing theories that can never be proved. Hence, you end up arguing on purely on logic. I don't think Krugman has been inconsistent or less than honest. Your entire brand of "new monetarism" has rarely been tried. So, by that logic you are having your cake and eating it too. I don't think so.I think you have interesting ideas in a pool of competing ideas. Some times these ideas are tested by events, often not.